QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2018

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37379

THE ONE GROUP HOSPITALITY, INC.

(Exact name of registrant as specified in
its charter)

Delaware

14-1961545

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

411 W. 14th Street, 2nd Floor, New York, New York

10014

(Address of principal executive offices)

Zip Code

646-624-2400

(Registrant’s telephone number, including area code)

Indicate by check mark whether registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x
No ¨

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨
(Do not check if a
smaller reporting
company)

Smaller reporting
company x

Emerging growth
company ¨

If an emerging growth company, indicate
by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No
x

Number of shares of common stock outstanding
as of May 8, 2018: 27,352,601

General and administrative (including stock-based compensation of $324 and $153, respectively)

3,055

2,921

Depreciation and amortization

778

866

Lease termination expense and asset write-offs

—

273

Pre-opening expenses

210

470

Equity in loss (income) of investee companies

23

(45

)

Other (income) expense, net

(111

)

12

Total costs and expenses

19,056

20,679

Operating income (loss)

461

(252

)

Interest expense, net of interest income

318

259

Income (loss) from continuing operations before provision for income taxes

143

(511

)

Income tax provision (benefit)

25

(17

)

Income (loss) from continuing operations

118

(494

)

Loss from discontinued operations

—

(106

)

Net income (loss)

118

(600

)

Less: net loss attributable to noncontrolling interest

(113

)

(198

)

Net income (loss) attributable to The ONE Group Hospitality, Inc.

$

231

$

(402

)

Currency translation adjustment

(75

)

(56

)

Comprehensive income (loss)

$

156

$

(458

)

Basic earnings (loss) per share:

Continuing operations

$

0.01

$

(0.01

)

Discontinued operations

$

—

$

—

Attributable to The ONE Group Hospitality, Inc.

$

0.01

$

(0.02

)

Diluted earnings (loss) per share:

Continuing operations

$

0.01

$

(0.01

)

Discontinued operations

$

—

$

—

Attributable to The ONE Group Hospitality, Inc.

$

0.01

$

(0.02

)

Weighted average number of common shares outstanding:

Basic

27,187,657

25,050,628

Diluted

27,388,498

25,050,628

See notes to the consolidated financial
statements.

4

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share
information)

Accumulated

Common stock

Additional

other

Shares

Par value

paid-in
capital

Accumulated
deficit

comprehensive
loss

Stockholders'
equity

Noncontrolling
interest

Total

Balance at December 31, 2017

27,152,101

$

3

$

41,007

$

(31,979

)

$

(1,556

)

$

7,475

$

(922

)

$

6,553

Adoption of ASC 606 “Revenue from contract with customers”

—

—

—

(54

)

—

(54

)

—

(54

)

Stock based compensation expense

—

—

324

—

—

324

—

324

Vesting of restricted shares

100,000

—

—

—

—

—

—

—

Loss on foreign currency translation, net

—

—

—

—

(75

)

(75

)

—

(75

)

Net income

—

—

—

231

—

231

(113

)

118

Balance at March 31, 2018

27,252,101

$

3

$

41,331

$

(31,802

)

$

(1,631

)

$

7,901

$

(1,035

)

$

6,866

See notes to the consolidated financial
statements.

5

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

For the quarter ended March 31,

2018

2017

Operating activities:

Net income (loss)

$

118

$

(600

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

778

866

Amortization of discount on warrants

51

47

Deferred rent

(18

)

(35

)

Deferred taxes

(2

)

—

Loss (income) from equity method investments

23

(45

)

Gain on disposition of cost method investment

(185

)

—

Stock-based compensation

324

153

Changes in operating assets and liabilities:

Accounts receivable

190

(386

)

Inventory

115

(78

)

Prepaid expenses and other current assets

(211

)

(506

)

Due from related parties, net

(99

)

(293

)

Security deposits

(54

)

(7

)

Other assets

(37

)

32

Accounts payable

(203

)

2,394

Accrued expenses

(718

)

(1,278

)

Deferred revenue

100

583

Net cash provided by operating activities

172

847

Investing activities:

Purchase of property and equipment

(306

)

(1,353

)

Proceeds from disposition of cost method investment

600

—

Net cash provided by (used in) investing activities

294

(1,353

)

Financing activities:

Proceeds from business loan and security agreement

—

1,000

Repayment of term loan

(694

)

(800

)

Repayment of equipment financing agreement

(87

)

(82

)

Repayment of business loan and security agreement

(62

)

—

Distributions to non-controlling interests

—

(23

)

Net cash (used in) provided by financing activities

(843

)

95

Effect of exchange rate changes on cash

(28

)

(35

)

Net decrease in cash and cash equivalents

(405

)

(446

)

Cash and cash equivalents, beginning of year

1,548

918

Cash and cash equivalents, end of year

$

1,143

$

472

Supplemental disclosure of cash flow data:

Interest paid

$

142

$

138

Income taxes paid

$

26

$

—

Noncash investing and financing activities:

Noncash debt issuance costs

$

—

$

35

See notes to the consolidated financial
statements.

6

THE ONE GROUP HOSPITALITY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of presentation

The accompanying consolidated balance sheet
as of December 31, 2017, which has been derived from audited financial statements, and the unaudited consolidated financial statements
of The ONE Group Hospitality, Inc. and its subsidiaries (collectively, "the Company") as of and for the three months
ended March 31, 2018 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The information furnished within this Form 10-Q reflects all adjustments (consisting only of normal recurring accruals and adjustments),
which are, in the Company’s opinion, necessary to fairly state the interim operating results for the respective periods.

The Company is a global hospitality company
that develops, owns, operates and manages upscale restaurants and lounges. The Company’s primary restaurant brand is STK,
a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality food and service of a traditional
upscale steakhouse. As of March 31, 2018, the Company owned, operated or managed eighteen venues across seven states and six countries.

The Company also provides turn-key food
and beverage (“F&B”) services for hospitality venues including hotels, casinos and other high-end locations. Turn-key
F&B services are food and beverage services that can be scaled, customized and implemented by the Company at a particular hospitality
venue and customized per the requirements of the client. As of March 31, 2018, under various management agreements, the Company
services thirteen venues throughout the United States and in Europe.

Certain information and footnote disclosure
normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United
States (“GAAP”) have been omitted pursuant to SEC rules and regulations. The notes to the consolidated financial statements
(unaudited) should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s
annual report on Form 10-K for the year ended December 31, 2017. The Company believes that the disclosures are sufficient for interim
financial reporting purposes. However, these operating results are not necessarily indicative of the results expected for the full
year.

Certain prior year amounts have been reclassified
to conform to current year presentation in the consolidated financial statements.

Note 2 - Liquidity

As of March 31, 2018, the Company's accumulated
deficit was $31.8 million and the Company's cash and cash equivalents was $1.1 million. The Company expects to finance its operations
for at least the next twelve months following the issuance of its consolidated financial statements, including the costs of opening
currently planned restaurants, through cash provided by operations and construction allowances provided by landlords of certain
locations. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private
financings, or warrant or option exercises. While the Company continues to seek capital through a number of means, there can be
no assurance that additional financing will be available to it on acceptable terms, if at all. If the Company is unable to access
necessary capital to meet its liquidity needs, the Company may have to delay or discontinue the expansion of its business or raise
funds on terms that it may consider unfavorable.

7

Note 3 - Inventory

Inventory consists
of the following (in thousands) as of:

March 31, 2018

December 31, 2017

Food

$

206

$

246

Beverages

1,082

1,156

Totals

$

1,288

$

1,402

Note 4 – Other current assets

Other current assets
consists of the following (in thousands) as of:

March 31,

December 31,

2018

2017

Prepaid taxes

$

274

$

255

Landlord receivable

258

258

Prepaid expenses

531

421

Other

446

365

Totals

$

1,509

$

1,299

Note 5 – Accrued expenses

Accrued expenses consists
of the following (in thousands) as of:

March 31, 2018

December 31, 2017

VAT and Sales taxes

$

528

$

739

Payroll and related

742

847

Income taxes

573

610

Due to hotels

1,190

1,168

Rent

1,384

1,471

Legal, professional and other services

374

1,007

Insurance

302

103

Other

1,113

1,042

Totals

$

6,206

$

6,987

Note 6 - Related party transactions

Net amounts due to related parties amounted
to $1.4 million and $1.5 million as of March 31, 2018 and December 31, 2017, respectively. The Company has not reserved any related
party receivables as of March 31, 2018 and December 31, 2017.

The Company incurred legal fees of $31,000 and $0.1 million
for the quarters ended March 31, 2018 and 2017, respectively, to an entity owned by one of its stockholders, who is also a former
director of the Company. The Company also receives rental income for an office space subleased to this entity. Rental income of
approximately $50,000 was recorded from this entity for each of the quarters ended March 31, 2018 and 2017. Included in amounts
due to related parties, net at March 31, 2018 and December 31, 2017, is a balance due to this entity of approximately $0.2
million and $0.3 million, respectively.

The Company incurred approximately $0.1
million and $0.8 million for the quarters ended March 31, 2018 and 2017, respectively, for construction services to an entity owned
by family members of one of the Company’s stockholders, who is also a former employee of the Company. Included in amounts
due to related parties, net at March 31, 2018 and December 31, 2017, is a balance due to this entity of approximately $14,000
and $11,000, respectively.

8

During the fourth quarter of 2016, the
Company received approximately $1.2 million in cash advances from the TOG Liquidation Trust (the “Liquidation Trust”).
The TOG Liquidation Trust is a trust that was set up in connection with a 2013 merger transaction to hold previously issued and
outstanding warrants held by members of the predecessor company. When warrants were exercised, the cash proceeds from the exercise
of the warrants remained in the Trust. Amounts due to the trust are non-interest bearing and are repayable in 2021 when the trust
expires. Included in due to related parties, long term at March 31, 2018 and December 31, 2017 is a balance due to the Liquidation
Trust of $1.2 million and $1.2 million, respectively.

Please refer to Note 9 for details on other
transactions with related parties.

Note 7 – Revenue from contracts
with customers

On January 1, 2018,
the Company adopted Accounting Standards Codification Topic 606 – “Revenue from Contracts with Customers” (“ASC
606”), using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented
under the new revenue recognition standard, while prior period amounts are not adjusted and continue to be reported under the accounting
standards in effect for the prior periods.

The Company recorded a net decrease to
opening accumulated deficit of $0.1 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact
primarily related to the licensing of our restaurants and the amortization of fees associated with our license agreements. The
changes were as follows (in thousands):

Balance at

December 31, 2017

ASC 606 Adjustments

Balance at

January 1, 2018

Liabilities

Deferred license revenue, current

$

115

$

100

$

215

Deferred license revenue, long-term

1,222

(46

)

1,176

Equity

Accumulated deficit

(31,979

)

(54

)

(32,033

)

Under ASC 606, because the services we
provide that are related to initial license fees and upfront fees related to our license agreements do not contain separate and
distinct performance obligations from the license right, these fees will be recognized on a straight line basis over the term of
the licensee agreement. Under previous guidance, initial license fees were recognized when the related services had been provided,
which was generally upon the opening of the restaurant, and upfront fees were recognized on a pro-rata basis as restaurants under
the development agreement were opened. These fees will continue to be recorded as a component of management, license and incentive
fee revenue on the consolidated statement of operations and comprehensive income (loss). ASC 606 requires sales-based royalties
to continue to be recognized as licensee restaurant sales occur.

9

The impact of adopting ASC 606 as compared
to the previous recognition guidance on our consolidated statement of operations and comprehensive income (loss) was as follows
(in thousands):

For the quarter ended March 31, 2018

As Reported

Balances Without Adoption of ASC 606

Adoption Impact
of ASC 606

Revenues

Management, license and incentive fee revenues

2,436

2,407

29

Net income

118

89

29

Note 8 - Stock-based Compensation

As of March 31, 2018, the Company had 499,207
shares reserved for issuance under the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Equity Plan”).

Stock-based compensation cost for the three
months ended March 31, 2018 and 2017 was $0.3 million and $0.2 million, respectively, and is included in general and administrative
expenses in the consolidated statement of operations and comprehensive income (loss). The Company did not grant any stock options
during the quarters ended March 31, 2018 and 2017.

Stock Option Activity

Changes in outstanding stock options for
2018 were as follows:

Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (Years)

IntrinsicValue

Outstanding at December 31, 2017

2,315,035

3.41

2018 Grants

—

—

Exercised

—

—

Forfeited

(80,000

)

3.76

Outstanding at March 31, 2018

2,235,035

3.40

7.07

$

888,040

Exercisable at March 31, 2018

849,384

4.84

4.54

$

2,360

A summary of the status of the Company’s
non-vested stock options as of March 31, 2018 and changes for the quarter then ended is presented below:

Shares

Weighted Average Grant Date Fair Value

Non-vested shares at December 31, 2017

1,424,651

$

0.99

Granted

—

—

Vested

—

—

Forfeited

(39,000

)

1.08

Non-vested shares at March 31, 2018

1,385,651

$

0.99

10

As of March 31, 2018, there are 579,402
milestone-based options outstanding. These options vest based on the achievement of Company and individual objectives as set by
the Board.

As of March 31, 2018, there is approximately
$1.4 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average
period of 2.8 years.

Restricted Stock Award Activity

The Company issues restricted stock awards
under the 2013 Equity Plan. The fair value of these awards is determined based upon the closing fair market value of the Company’s
common stock on the grant date.

A summary of the status of restricted stock
awards and changes for the three months ended March 31, 2018 are presented below:

Shares

Weighted Average Grant Date Fair Value

Non-vested at December 31, 2017

985,000

$

2.26

Granted

59,834

2.75

Vested

(100,000

)

1.42

Forfeited

(6,000

)

2.73

Non-vested at March 31, 2018

938,834

$

2.38

As of March 31, 2018, 250,000 restricted
shares subject to performance-based milestones were still outstanding. As of March 31, 2018, the Company had approximately $2.2
million of total unrecognized compensation costs related to restricted stock awards, which will be recognized over a weighted average
period of 3.2 years.

Note 9 – Nonconsolidated variable
interest entities

As of December 31, 2017 and March 31, 2018,
the Company’s equity method and cost method investments, for which the Company has determined it is not the primary beneficiary,
consist of interests in the following companies, which directly or indirectly operate restaurants:

Bagatelle Investors is a holding company
that has an interest in Bagatelle NY. Both entities were formed in 2011. The Company has determined that it is not the primary
beneficiary of these entities as it does not have the power to direct their day to day activities, but the Company is able to exercise
influence over these entities. The Company has provided no additional types of support to these entities than what is contractually
required.

One 29 Park, formed in 2009, operates a
restaurant and manages the rooftop of a hotel located in New York, NY. Until the fourth quarter of 2017, the Company accounted
for its investment in One 29 Park under the equity method of accounting based on management’s assessment that the Company
had significant influence over One 29 Park’s operations. In the fourth quarter of 2017, the majority ownership of One 29
Park changed. As a result of this ownership change, the Company believes that it no longer has significant influence over the operations
of One 29 Park, and subsequently began accounting for its investment in One 29 Park under the cost method of accounting. In March
2018, the Company entered into an agreement to sell its 10% interest in One 29 Park to the new ownership group for $0.6 million.
For the quarter ended March 31, 2018, the Company reduced its investment in One 29 Park to $0 and recorded a gain of $0.2 million
on the sale of its interest in One 29 Park as a component of other expenses, net on the consolidated statement of operations and
comprehensive income (loss).

11

At March 31, 2018 and December 31, 2017,
the carrying values of these investments were (in thousands):

March 31, 2018

December 31, 2017

Bagatelle Investors

$

30

$

33

Bagatelle NY

2,489

2,509

One 29 Park

—

415

Totals

$

2,519

$

2,957

For the quarter ended March 31,

2018

2017

Equity in loss (income) of investee companies

$

23

$

(45

)

The Company has entered into
management agreements with Bagatelle NY and One 29 Park. For Bagatelle, the Company recorded
management fee revenue of approximately $37,000 and $48,000 for the quarters ended March 31, 2018 and 2017, respectively. For
One 29 Park, the Company recorded management fee revenue of $0.1 million for each of the quarters ended March 31, 2018 and
2017, respectively. The Company receives rental income from Bagatelle for restaurant space that it subleases to Bagatelle.
Rental income of $0.1 million was recorded from this entity for each of the quarters ended March 31, 2018 and 2017,
respectively. Net payables of $43,000 and net receivables of $0.1 million to/from Bagatelle and One 29 Park are included in
due to related parties, net on the March 31, 2018 and December 31, 2017 consolidated balance sheets, respectively. These
amounts, combined with the Company’s equity in each of these investments, represent the Company’s maximum
exposure to loss.

Note 10 – Income taxes

The Company’s effective income tax
rate was 17.5% for the three months ended March 31, 2018, compared to an effective tax rate of 14.7% for the three months ended
March 31, 2017. For the three months ended March 31, 2018 and March 31, 2017 the Company excluded jurisdictions with losses in
which no benefit can be recognized from the effective tax rate calculation.

In December 2017, the President signed
The Tax Cuts and Jobs Act (the “TCJA”), which includes a broad range of provisions. The TCJA contains several key provisions
including:

·

A one-time tax on the mandatory deemed repatriation of
post-1986 untaxed foreign earnings and profits (“E&P”);

·

A reduction in the corporate tax rate from 35% to 21% for
tax years beginning after December 31, 2017;

·

The introduction of a new U.S. tax on certain off-shore
earnings referred to as Global Intangible Low-Taxed Income (“GILTI”) at an effective tax rate of 10.5% for tax years
beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) partially offset by
foreign tax credits; and

·

Introduction of a territorial tax system beginning in 2018
by providing for a 100% dividend received deduction on certain qualified dividends from foreign subsidiaries.

12

Pursuant to the enactment of the TCJA,
in the fourth quarter of 2017, the Company recorded an adjustment of $2.9 million to revalue its net deferred tax asset utilizing
the corporate tax rate of 21% which was entirely offset by a reduction in our valuation allowance. Additionally, the Company accounted
for the mandatory deemed repatriation using a provisional amount of $1.9 million. Due to the complexities involved in accounting
for the enactment of the TCJA, SEC Staff Accounting Bulletin 118 allows companies to record provisional estimates of the impacts
of the TCJA during a measurement period of up to one year from the enactment date. In order to estimate the impact of the one-time
transition tax on accumulated foreign earnings, the Company used the retained earnings of its foreign subsidiaries as a proxy to
calculate E&P for the 2017 tax provision. While retained earnings and E&P are two separate and distinct calculations, the
Company believes that retained earnings can initially be used as a relatively accurate proxy for E&P. The Company believes
that typical E&P adjustments for items such as depreciation, certain reserves and tax exempt income and other permanent nondeductible
expenses for E&P are either immaterial or nonexistent. Therefore, in the absence of a formal E&P analysis, retained earnings
was considered to be a reasonable estimate. The Company will conduct a comprehensive E&P analysis prior to the filing of its
2017 tax return. Only after the completion of the E&P study will the Company be able to determine with certainty the tax impact
of the deemed repatriation provision of the TCJA. Any adjustment resulting from the E&P analysis will be included as a tax
adjustment to continuing operations in 2018.

As mentioned above, the TCJA subjects a
U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. Financial Accounting Standards Board (“FASB”)
Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting
policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide
for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize
the resulting tax on GILTI as a period expense in the period the tax is incurred and expects to incur no tax for the year ended
December 31, 2018 due to the availability of foreign tax credits and net operating losses.

Note 11 – Net income per share

Basic net income (loss) per share is computed
using the weighted average number of common shares outstanding during the applicable period. Diluted net income (loss) per share
is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential
common stock. Potential common stock consists of shares issuable pursuant to stock options and warrants.

Net income (loss) available to common stockholders per share - Diluted

$

0.01

$

(0.02

)

Anti-dilutive stock options, warrants and restricted share units

2,114,437

—

For the three months ended March 31, 2017,
all equivalent shares underlying options and warrants were excluded from the calculation of diluted earnings per share as the
Company was in a net loss position. Basic and diluted earnings per share for discontinued operations was $0.00 for each of the
quarters ended March 31, 2018 and 2017.

Net income (loss) per share amounts for
continuing operations and discontinued operations are computed independently. As a result, the sum of per share amounts may not
equal the total.

13

Note 12 – Litigation

The Company is subject to claims and legal
actions in the ordinary course of business, including claims by or against its licensees, employees, former employees and others.
The Company does not believe any currently pending or threatened matter would have a material adverse effect on its business, results
of operations or financial condition.

Note 13 – Segment reporting

The Company’s Chief Executive Officer (“CEO”),
who began serving as the Company’s CEO on October 30, 2017 and has been deemed the Company’s Chief Operating Decision
Maker, manages the business and allocates resources via a combination of restaurant sales reports and segment profit information
(which is defined as revenues less operating expenses) related to the Company’s three sources of revenue, which are presented
in their entirety within the consolidated statements of operations and comprehensive income (loss). We have revised our segments
to align with how our CEO manages the business. Prior period segments have been restated to conform to the current year’s
presentation (in thousands):

Three Months Ended March 31,

2018

2017

Revenues:

Owned restaurants

$

15,076

$

14,228

Owned food, beverage and other operations

2,005

3,885

Managed and licensed operations

2,436

2,314

$

19,517

$

20,427

Segment Profits:

Owned restaurants

$

1,664

$

983

Owned food, beverage and other operations

316

948

Managed and licensed operations

2,436

2,314

Total segment profit

4,416

4,245

General and administrative

3,055

2,921

Depreciation and amortization

778

866

Interest expense, net of interest income

318

259

Equity in loss (income) of investee companies

23

(45

)

Other, net

99

755

Income (loss) from continuing operations before provision for income taxes

$

143

$

(511

)

Total assets:

March 31,

2018

December 31,

2017

Owned restaurants

$

40,285

$

40,570

Owned food, beverage and other operations*

6,501

7,385

Managed and licensed operations

4,837

5,060

Total

$

51,623

$

53,015

* Includes corporate assets

14

Capital asset additions:

Three Months Ended March 31,

2018

2017

Owned restaurants

$

301

$

1,236

Owned food, beverage and other operations**

5

117

Managed and licensed operations

—

—

Total

$

306

$

1,353

** Includes corporate capital asset additions

Note 14 – Geographic information

The following table contains certain financial
information by geographic location for the periods indicated (in thousands):

Revenues

Three Months Ended March 31,

2018

2017

United States:

Owned restaurants

$

15,076

$

14,228

Owned food, beverage and other operations

2,005

3,885

Managed and licensed operations

1,687

1,687

Total United States revenues

$

18,768

$

19,800

Foreign:

Owned restaurants

$

—

$

—

Owned food, beverage and other operations

—

—

Managed and licensed operations

749

627

Total foreign revenues

$

749

$

627

Total revenues

$

19,517

$

20,427

Long-lived Assets

March 31, 2018

December 31, 2017

United States:

Owned restaurants

$

37,451

$

37,907

Owned food, beverage and other operations***

4,768

5,088

Managed and licensed operations

92

109

Total United States long-lived assets

$

42,311

$

43,104

Foreign:

Owned restaurants

$

—

$

—

Owned food, beverage and other operations

—

—

Managed and licensed operations

120

148

Total foreign long-lived assets

$

120

$

148

Total long-lived assets

$

42,431

$

43,252

*** Includes corporate assets

15

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

We wish to caution our readers that
this Quarterly Report on Form 10-Q and certain information incorporated herein by reference contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section
27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements, which are intended
to speak only as of the date thereof, involve risks and uncertainties that may cause our actual results, performance or achievements
to be materially different from any future performance or achievements expressed or implied by these forward-looking statements.
Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements
may include matters such as future economic performance, general economic conditions, consumer preferences and spending, costs,
competition, new product execution, restaurant openings or closings, operating margins, the availability of acceptable real estate
locations, the sufficiency of our cash balances and cash generated from operating and financing activities for our future liquidity
and capital resource needs, growth of licensing, the impact on our business as a result of Federal and/or State legislation, future
litigation and other matters, and are generally accompanied by words such as: “believes,” “anticipates,”
“plans,” “intends,” “estimates,” “predicts,” “targets,” “expects,”
“contemplates” and similar expressions that convey the uncertainty of future events or outcomes. These risks and uncertainties
include, but are not limited to, the risk factors described in our annual report on Form 10-K for the fiscal year ended December
31, 2017. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable
law.

General

This information should be read in conjunction
with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and
the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition
and Results of Operations, contained in the Company’s Form 10-K for the fiscal year ended December 31, 2017 (the “2017
Form 10-K”).

As used in this report, the terms “company,”
“we,” “our,” or “us,” refer to The One Group Hospitality, Inc. and its consolidated subsidiaries,
taken as a whole, unless the context otherwise indicates. The term “quarter ended” refers to the entire calendar quarter,
unless the context otherwise indicates.

Overview

The ONE Group Hospitality, Inc. is a Delaware corporation that
develops, owns and operates, or licenses upscale, high-energy restaurants and lounges and provides turn-key food and beverage services
for hospitality venues including hotels, casinos and other high-end locations globally. We define turn-key food and beverage (“F&B”)
services as those services that can be scaled and implemented by us at a particular hospitality venue and customized per the requirements
of the client.

We were established with the vision of
becoming a global market leader in the hospitality industry by melding high-quality service, ambiance and cuisine into one great
experience. Our primary restaurant brand is STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere
with the quality and service of a traditional upscale steakhouse.

Our F&B hospitality management services
include developing, managing and operating restaurants, bars, rooftop lounges, pools, banqueting and catering facilities, private
dining rooms, room service and mini bars tailored to the specific needs of high-end hotels and casinos. Our F&B hospitality
clients operate global hospitality brands such as the W Hotel, Cosmopolitan Hotel, Hippodrome Casino, Hyatt and ME Hotels. These
locations are typically operated under our management agreements under which we earn a management fee based on revenue and an incentive
fee based on profitability of the underlying operations.

16

As of March 31, 2018, our operations are
spread across 31 venues as follows:

Venues

STK

STK Rooftop

Bagatelle*

F&B Hospitality

Total

Company-owned

8

2

-

-

10

Managed

4

-

-

13

17

Licensed

2

1

-

-

3

Other

-

-

1

-

1

14

3

1

13

31

* Unconsolidated
subsidiary accounted for under the equity method of accounting.

Our plans for near term growth include
the opening of an owned STK restaurant in San Diego in the second quarter of 2018. We expect that our growth in 2018 will continue
with the planned openings of licensed locations in Puerto Rico, Dubai, Qatar and Mexico.

Net income for the quarter ended March 31, 2018 was $0.1 million
($0.01 per share) compared to a net loss for the quarter ended March 31, 2017 of $0.6 million (-$0.02 per share). Our net loss
for the quarter ended March 31, 2017 included a loss from discontinued operations of $0.1 million ($-0.01 per share). The loss
from discontinued operations reflects the winding down of operations that we have exited.

Recent Developments

In March 2018, we entered into an agreement
to sell our 10% interest in One 29 Park for $0.6 million. One 29 Park, which is accounted for under the cost method of accounting,
operates a restaurant and manages the rooftop bar of a hotel located in New York, NY.

During the first quarter of 2017, we hosted
a party for the Super Bowl. The party contributed $1.7 million of revenue for the first quarter of 2017. We did not have a similar
event during the first quarter of 2018. Revenues and expenses associated with this event were recorded within our “owned
food, beverage and other” segment.

Our Growth Strategies and Outlook

Our growth model is primarily comprised
of the following drivers:

Expansion of STK. We expect to continue
to expand our operations domestically and internationally through a mix of licensed restaurants and managed units using a disciplined
and targeted site selection process (“capital light strategy”). Under our capital light strategy, we expect to open
as many as three to five STK restaurants annually primarily through management or licensing agreements, provided that we have sufficient
interest from prospective licensees, acceptable locations and quality restaurant managers available to support that pace of growth.
We have identified over 30 additional major metropolitan areas across the globe where we believe that we could grow our STK brand
over the next several years. However, there can be no assurance that we will be able to open new STKs at the rate we currently
expect or that our pipeline of planned offerings will be fully realized.

Expansion through New Food and Beverage
Hospitality Projects. We believe that we are well positioned to leverage the strength of our brands and the relationships we
have developed with global hospitality providers to drive the continued growth of our food and beverage hospitality projects, which
traditionally have provided us with revenue through management and incentive revenue while requiring minimal capital expenditures
from us. We continue to receive a large number of inquiries regarding new services at new hospitality venues globally and continue
to work with existing hospitality clients to identify and develop additional opportunities at their venues. In the future, we expect
to target at least one to two new F&B hospitality projects every twelve months. However, we cannot control the timing and number
of acceptable opportunities that will be offered to us for our consideration or whether we will be able to enter into food and
beverage agreements with respect to such opportunities. We did not enter into any new food and beverage agreements for the quarter
ended March 31, 2018.

17

Increase Our Operating Efficiency.
In addition to expanding into new cities and hospitality venues, we intend to increase revenue and profits in our existing operations
through continued focus on high-quality, high-margin food and beverage menu items. We expect company-owned same store sales to
grow in 2018, at a mid-single digit pace. For the quarter ended March 31, 2018, our company-owned same store sales increased
+8.7%. We believe that our operating margins will improve through same store sales growth. Furthermore, as our footprint continues
to increase, we expect to benefit by leveraging system-wide operating efficiencies and best practices through the management of
our general and administrative expenses as a percentage of overall revenue. We will continue to look at opportunities to decrease
our general and administrative expenses by outsourcing non-core activities and through increases in staff productivity. We believe
that we have adequate capital and resources available to allocate towards our operational initiatives, but there can be no assurance
that we will be able to expand our operations, increase our revenues or reduce our costs at the rate we currently expect, or at
all.

Key Performance Indicators

We use the following key performance indicators
in evaluating our restaurants and assessing our business:

Number of Restaurant Openings. Number
of restaurant openings reflects the number of restaurants opened during a particular fiscal period. For each restaurant opening,
we incur pre-opening costs, which are defined below. Typically, new restaurants open with an initial start-up period of higher
than normalized sales volumes (also referred to in the restaurant industry as the “honeymoon” period), which decrease
to a steady level approximately 18 to 24 months after opening. However, operating costs during this initial period are also higher
than normal, resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase
to a steady level approximately 18 to 24 months after opening. Some new restaurants may experience a “honeymoon” period
that is either shorter or longer than this time frame. We plan to open an STK restaurant in the Andaz Hotel in San Diego, California
during the second quarter of 2018.

We consider an owned unit to be comparable
in the first full quarter following its 18th month of operation to remove the impact of new unit openings in comparing the operations
of existing units. Our comparable unit base of owned restaurants consisted of six units for the quarter ended March 31, 2018.

Average Check. Average check is calculated
by dividing total restaurant sales by total entrees sold for a given time period. Our management team uses this indicator to analyze
trends in customers’ preferences, customer expenditures and the overall effectiveness of menu changes and price increases.
For comparable restaurants, our average check for the quarter ended March 31, 2018 was $97.37 compared to $96.52 for the quarter
ended March 31, 2017.

Average Comparable Unit Volume.
Average comparable unit volume consists of the average sales of our comparable restaurants over a certain period of time. This
measure is calculated by dividing total comparable restaurant sales in a given period by the total number of comparable restaurants
in that period. This indicator assists management in measuring changes in customer traffic, pricing and development of our brand.
For restaurants that have been open a full twelve months, our average comparable unit volume for the quarter ended March 31, 2018
was $2.3 million compared to $2.2 million for the quarter ended March 31, 2017.

Key Financial Terms and Metrics

We evaluate our business using a variety
of key financial measures:

18

Segment reporting

We operate in three segments: “Owned restaurants”,
“Owned food, beverage and other”, and “Managed and Licensed operations”. We believe these to be our reportable
segments as they do not have similar economic or other characteristics to be aggregated into a single reportable segment. Our Owned
restaurant segment consists of leased restaurant locations and competes in the full-service dining industry. Our Owned food, beverage
and other segment consists of operations that are hybrid in nature, such as where we have a leased restaurant location and also
have a food and beverage agreement at the same location, typically a hotel, and our offsite banquet offerings. The primary component
of this segment is our operations at the W Hotel in Beverly Hills, California. Our Managed and Licensed operations segment includes
all operations for which a management, incentive or license fee is received. Management agreements generate management fees on
net revenue and incentive fees on operating profit as defined in the applicable management agreement. License agreements generate
revenue primarily through royalties earned on net revenue at each location. Revenues associated with developmental support for
licensed locations are also included within this segment.

Revenues

Owned restaurant net revenues. Owned
restaurant net revenues consists of food and beverage sales by owned restaurants net of any discounts associated with each sale.
For the quarter ended March 31, 2018, beverage sales comprised 32% of food and beverage sales, before giving effect to any discounts,
with food sales comprising the remaining 68%. For the quarter ended March 31, 2017, beverage sales comprised 34% of food and beverage
sales, before giving effect to any discounts, with food sales comprising the remaining 66%. This indicator assists management in
understanding the trends in gross margins of the units.

Owned food, beverage and other net revenues. Owned food,
beverage and other net revenues include the sales generated by the STK restaurant at the W Hotel in Los Angeles, California and
any ancillary food and beverage hospitality services at the same location. From time-to-time, offsite banquet opportunities arise
and are reflected here.

Management, license and incentive fee
revenues. Management, license and incentive fee revenues includes (1) management fees received pursuant to management and
license agreements that are calculated based on a fixed percentage of revenues at the managed or licensed location; (2) incentive
fees based on the operating profitability of a particular venue, as defined in each agreement; and (3) recognition of license fee
related revenues, which are recognized over the term of the license.

We evaluate the performance of our managed
and licensed properties based on sales growth, a key driver for our management/royalty fees, and on improvements in operating profitability
margins, which combined with sales, drives incentive fee growth.

Our primary restaurant brand is STK and
we specifically look at comparable revenues from both owned and managed STKs to understand customer count trends and changes in
average check as it relates to our primary restaurant brand.

Cost and expenses

Owned restaurant cost of sales. Owned
restaurant cost of sales includes all owned restaurant food and beverage expenditures. We measure cost of goods as a percentage
of owned restaurant net revenues. Owned restaurant cost of sales are generally influenced by the cost of food and beverage items,
menu mix, discounting activity and restaurant level controls. Purchases of beef represented approximately 35% and 30% of our food
and beverage costs during the quarters ended March 31, 2018 and 2017, respectively.

Payroll and related expenses.
Payroll and related expenses consists of manager salaries, hourly staff payroll and other payroll-related items, including taxes
and fringe benefits. We measure our labor cost efficiency by tracking total labor costs as a percentage of owned restaurant net
revenues.

19

Occupancy. Occupancy
comprises all occupancy costs, consisting of both fixed and variable portions of rent, deferred rent expense, which is a non-cash
adjustment included in our Adjusted EBITDA calculation as defined below, common area maintenance charges, real estate property
taxes, utilities and other related occupancy costs and is measured by considering both the fixed and variable components of certain
occupancy expenses.

Outside services. Outside
services includes music and entertainment costs, such as the use of live DJ’s, promoter costs, security services, outside
cleaning services and commissions paid to event staff for banquet sales.

Repairs and maintenance.
Repairs and maintenance consists of general repair work to maintain our facilities, as well as computer maintenance contracts.
We expect these costs to increase at each facility as they get older.

Marketing. Marketing
includes the cost of promoting our brands and, at times, can include the cost of goods used specifically for complimentary purposes.
Marketing costs will typically be higher during the first 18 months of a unit’s operations.

General and administrative. General
and administrative expenses are comprised of all corporate overhead expenses, including payroll and related benefits, professional
fees, such as legal and accounting fees, insurance and travel expenses. Certain centrally managed general and administrative expenses
are allocated specifically to units and are reflected in owned restaurant operating expenses and include shared services such as
reservations, events and marketing. We expect general and administrative expenses to be leveraged as we grow, become more efficient,
and continue to focus on best practices and cost savings measures.

Depreciation and amortization. Depreciation
and amortization consists principally of charges related to the depreciation of fixed assets including leasehold improvements,
equipment and furniture and fixtures. As we intend to support our growth initiatives with an increasing number of managed and licensed
restaurant openings, depreciation and amortization is not expected to increase significantly in the near future.

Pre-opening expenses. Pre-opening
expenses consist of costs incurred prior to opening an owned or managed STK unit at either a leased or F&B location. Pre-opening
expenses are comprised principally of manager salaries and relocation costs, employee payroll, training costs for new employees
and lease costs incurred prior to opening. We expect these costs to decrease as we focus our growth towards our capital light model.
Pre-opening expenses have varied from location to location depending on a number of factors, including the proximity of our existing
restaurants; the amount of rent expensed during the construction and in-restaurant training periods; the size and physical layout
of each location; the number of management and hourly employees required to operate each restaurant; the relative difficulty of
the restaurant staffing process; the cost of travel and lodging for different metropolitan areas; the timing of the restaurant
opening; and the extent of unexpected delays, if any, in obtaining necessary licenses and permits to open the restaurant.

Equity in (income) loss of subsidiaries.
This represents the income or loss that we record under the equity method of accounting for entities that are not consolidated.
Included in this amount is our ownership in Bagatelle New York for which we have effective ownership of approximately 51%, consisting
of a 5.23% direct ownership interest by us and a 45.9% ownership interest through two of our subsidiaries. We also have a 10% effective
ownership in One 29 Park, LLC (“One 29 Park”). One 29 Park operates a restaurant and manages the rooftop of a hotel
located in New York, NY. Until the fourth quarter of 2017, we accounted for our investment in One 29 Park under the equity method
of accounting based on our assessment that we had significant influence over One 29 Park’s operations. In the fourth quarter
of 2017, the majority ownership of One 29 Park changed. As a result of this ownership change, we believe that we no longer have
significant influence over the operations of One 29 Park and now account for our investment in One 29 Park under the cost method
of accounting. In March 2018, we entered into an agreement to sell our 10% interest in One 29 Park to the new ownership group for
$0.6 million and recorded a gain of $0.2 million.

20

Other Items

EBITDA and Adjusted EBITDA. EBITDA
and Adjusted EBITDA are presented in this Quarterly Report on Form 10-Q and are supplemental measures of financial performance
that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest expense, provision
for income taxes and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, provision
for income taxes, depreciation and amortization, non-cash impairment loss, deferred rent, pre-opening expenses, lease termination
expenses, non-recurring gains and losses, stock-based compensation and losses from discontinued operations. Not all of the aforementioned
items defining Adjusted EBITDA occur in each reporting period, but have been included in our definitions of these terms based on
our historical activity.

We believe that EBITDA and Adjusted EBITDA are more appropriate
measures of our operating performance, as they provide a clearer picture of our operating results by eliminating certain non-cash
expenses that are not reflective of the underlying business performance. We use these metrics to facilitate a comparison of our
operating performance on a consistent basis from period to period, to analyze the factors and trends affecting our business and
to evaluate the performance of our units. Adjusted EBITDA has limitations as an analytical tool and our calculation of Adjusted
EBITDA may not be comparable to that reported by other companies; accordingly, you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP. Adjusted EBITDA is included in this Quarterly Report on Form 10-Q
because it is a key metric used by management. Additionally, Adjusted EBITDA is frequently used by analysts, investors and other
interested parties to evaluate companies in our industry. We use Adjusted EBITDA, alongside other GAAP measures such as net income
(loss), to measure profitability, as a key profitability target in our budgets, and to compare our performance against that of
peer companies despite possible differences in calculation.

Please refer to table on page 26 for our
reconciliation of net loss to EBITDA and Adjusted EBITDA.

21

Results of Operations

The following table sets forth certain
statements of operations data for the periods indicated (in thousands):

For the quarters ended March 31,

2018

2017

Revenues:

Owned restaurant net revenues

$

15,076

$

14,228

Owned food, beverage and other net revenues

2,005

3,885

Total owned revenue

17,081

18,113

Management, license and incentive fee revenues

2,436

2,314

Total revenues

19,517

20,427

Cost and expenses:

Owned operating expenses:

Owned restaurants:

Owned restaurant cost of sales

4,034

3,876

Owned restaurant operating expenses

9,378

9,369

Total owned restaurant expenses

13,412

13,245

Owned food, beverage and other expenses

1,689

2,937

Total owned operating expenses

15,101

16,182

General and administrative (including stock-based compensation expense of $324 and $153, respectively)

3,055

2,921

Depreciation and amortization

778

866

Lease termination expense and asset write-offs

—

273

Pre-opening expenses

210

470

Equity in losses (income) of investee companies

23

(45

)

Other (income) expense, net

(111

)

12

Total costs and expenses

19,056

20,679

Operating income (loss)

461

(252

)

Other expenses, net:

Interest expense, net of interest income

318

259

Income (loss) from continuing operations before provision for income taxes

143

(511

)

Income tax provision (benefit)

25

(17

)

Income (loss) from continuing operations

118

(494

)

Loss from discontinued operations

—

(106

)

Net income (loss)

118

(600

)

Less: net loss attributable to noncontrolling interests

(113

)

(198

)

Net income (loss) attributable to The ONE Group Hospitality, Inc.

$

231

$

(402

)

22

The following table sets forth certain
statements of operations data as a percentage of revenues for the periods indicated:

For the quarters ended

March 31,

2018

2017

Revenues:

Owned restaurant net revenues

77.2

%

69.7

%

Owned food, beverage and other net revenues

10.3

%

19.0

%

Total owned revenues

87.5

%

88.7

%

Management, license and incentive fee revenues

12.5

%

11.3

%

Total revenues

100.0

%

100.0

%

Cost and expenses:

Owned operating expenses:

Owned Restaurants:

Owned restaurant cost of sales (1)

26.8

%

27.2

%

Owned restaurant operating expenses (1)

62.2

%

65.8

%

Total owned restaurant expenses (1)

89.0

%

93.1

%

Owned food, beverage and other expenses (2)

84.2

%

75.6

%

Total owned operating expenses (3)

88.4

%

89.3

%

General and administrative (including stock-based compensation expense of 1.7% and 0.7%, respectively)

15.7

%

14.3

%

Depreciation and amortization

4.0

%

4.2

%

Lease termination expense and asset write-offs

—

%

1.3

%

Pre-opening expenses

1.1

%

2.3

%

Equity in loss (income) of investee companies

0.1

%

(0.2

)%

Other (income) expenses

(0.6

)%

0.1

%

Total costs and expenses

97.6

%

101.2

%

Operating income (loss)

2.4

%

(1.2

)%

Other expenses, net:

Interest expense, net of interest income

1.6

%

1.3

%

Income (loss) from continuing operations before provision for income taxes

0.7

%

(2.5

)%

Provision for income taxes

0.1

%

(0.1

)%

Income (loss) from continuing operations

0.6

%

(2.4

)%

Loss from discontinued operations

—

%

(0.5

)%

Net income (loss)

0.6

%

(2.9

)%

Less: net loss attributable to noncontrolling interests

(0.6

)%

(1.0

)%

Net income (loss) attributable to The One Group Hospitality, Inc.

1.2

%

(1.9

)%

(1)

These expenses are being shown as a percentage of owned restaurant net revenues.

(2)

These expenses are being shown as a percentage of owned food, beverage and other net revenues.

(3)

These expenses are being shown as a percentage of total owned revenue.

23

The following tables show our operating
results by segment for the periods indicated (in thousands):

Three Months Ended March 31, 2018

Three Months Ended March 31, 2017

Owned restaurants

Owned food, beverage and
other

Managed and licensed operations

Total

Owned restaurants

Owned food, beverage and
other

Managed and licensed operations

Total

Revenues, net:

Owned net revenues

$

15,076

$

2,005

$

—

$

17,081

$

14,228

$

3,885

$

—

$

18,113

Management, license and incentive fee revenue

—

—

2,436

2,436

—

—

2,314

2,314

Total revenue

15,076

2,005

2,436

19,517

14,228

3,885

2,314

20,427

Cost and expenses:

Owned operating expenses:

Cost of sales

4,034

—

—

4,034

3,876

—

—

3,876

Other operating expenses

9,378

—

—

9,378

9,369

—

—

9,369

Owned food, beverage and other expenses

—

1,689

—

1,689

—

2,937

—

2,937

Total owned operating expenses

13,412

1,689

—

15,101

13,245

2,937

—

16,182

Segment income

$

1,664

$

316

$

2,436

4,416

$

983

$

948

$

2,314

4,245

General and administrative

3,055

2,921

Depreciation and amortization

778

866

Interest expense, net of interest income

318

259

Equity in income of investee companies

23

(45

)

Other

99

755

Income (loss) from continuing operations before provision for income taxes

$

143

$

(511

)

24

The following table presents a reconciliation
of net loss to EBITDA and Adjusted EBITDA for the periods indicated (in thousands):

Three Months Ended March 31,

2018

2017

Net income (loss) attributable to The ONE Group Hospitality, Inc.

$

231

$

(402

)

Net loss attributable to noncontrolling interest

(113

)

(198

)

Net income (loss)

118

(600

)

Interest expense, net of interest income

318

259

Provision (benefit) for income tax

25

(17

)

Depreciation and amortization

778

866

EBITDA

1,239

508

Deferred rent (1)

(20

)

(38

)

Pre-opening expenses

210

470

Lease termination expense and asset write-offs (2)

—

273

Loss from discontinued operations, net of taxes

—

106

Stock based compensation

324

153

Adjusted EBITDA

1,753

1,472

Adjusted EBITDA attributable to noncontrolling interest

(42

)

(137

)

Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.

$

1,795

$

1,609

(1)

Deferred rent is included in owned restaurant operating expenses and general and administrative expenses on the statement of
operations and comprehensive income (loss).

(2)

Lease termination expense and asset write-offs is related to the costs associated with closed or abandoned locations.

Three Months Ended March 31, 2018 Compared to the Three Months
Ended March 31, 2017

Revenues

Owned restaurant net revenues. Owned restaurant net revenues
increased $0.9 million, or 6.0%, from $14.2 million for the quarter ended March 31, 2017 to $15.1 million for the quarter ended
March 31, 2018. This increase was primarily due to increased sales at our New York, Orlando, Florida and Atlanta, Georgia locations, partially offset by decreased sales at our Denver, Colorado location.
Comparable owned STK unit sales increased +8.7% and average check increased +0.9% for the three months ended March 31, 2018. We
believe that sales at our Denver location have decreased due to higher than normal sales volume for the quarter ended March 31,
2017. Our Denver location opened in January 2017. Typically, new restaurants open with an initial start-up period of higher than
normalized sales volumes (referred to in the restaurant industry as the “honeymoon” period).

Owned food, beverage and other revenues.
Owned food, beverage and other revenues decreased $1.9 million, or 48.4%, from $3.9 million for the quarter ended March 31, 2017
to $2.0 million for the quarter ended March 31, 2018. During the first quarter of 2017, we hosted a party for the Super Bowl. The
party contributed $1.7 million of revenue for the first quarter of 2017. We did not have a similar event during the first quarter
of 2018.

25

Management, license and incentive fee
revenues. Revenue generated from the restaurants and lounges at which we operate under management or license agreements, and
from F&B services at hospitality venues impacts the amount of management and incentive fees that we earn. Management, license
and incentive fee revenues increased $0.1 million, or 5.3%, from $2.3 million for the three months ended March 31, 2017 to $2.4
million for the three months ended March 31, 2018. The increase was primarily due to an increase in our management and incentive
fee revenue at our STK in Las Vegas (Nevada) and from our operations in London (United Kingdom) and Milan (Italy).

Costs and Expenses

Owned restaurant cost of sales.
Food and beverage costs for owned restaurants increased $0.2 million, or 4.1%, from $3.8 million for the quarter ended March 31,
2017 to $4.0 million for the quarter ended March 31, 2018. This increase was primarily due to increased sales at our owned locations.
As a percentage of owned restaurant net revenues, cost of sales decreased from 27.2% for the quarter ended March 31, 2017 to 26.8%
for the quarter ended March 31, 2018. The decrease in the percentage of food and beverage costs as a percentage of food and beverage
sales was due to selective price increases that we implemented in January 2018. Food revenues as a percentage of total food and
beverage revenues were approximately 68% and 66% for the quarters ended March 31, 2018 and 2017, respectively. Food costs as a
percentage of food revenues are typically higher than beverage costs as a percentage of beverage revenues.

Owned restaurant operating expenses.
Owned restaurant operating expenses remained flat at $9.4 million for the quarter ended March 31, 2018 as compared to the quarter
ended March 31, 2017. This is primarily due to our cost savings at all locations, including venues that have been open for over
eighteen months as well as more recently opened locations. Our cost saving initiatives are aimed to offset minimum wage increases.
As a percentage of owned restaurant net revenues, owned restaurant operating expenses decreased 3.6% from 65.8% for the quarter
ended March 31, 2017 to 62.2% for the quarter ended March 31, 2018. This improvement was due to the leverage of comparable sales
growth and a continued focus on labor and spending efficiency.

Owned food, beverage and other expenses.
Owned food, beverage and other expenses decreased $1.2 million, or 42.5%, from $2.9 million for the quarter ended March 31, 2017
to $1.7 million for the quarter ended March 31, 2018. This decrease is primarily due to costs associated with the Super Bowl event
that we held in 2017 that we did not hold in 2018.

General and administrative. General
and administrative costs increased $0.1 million, or 4.6% from $2.9 million for the quarter ended March 31, 2017 to $3.1 million
for the quarter ended March 31, 2018. The increase was due primarily to an increase in fees associated with the completion of the
annual audit of our financial statements for fiscal 2017 in the first quarter of 2018 of approximately $0.5 million and an increase
in non-cash stock based compensation of $0.2 million, partially offset by savings in corporate payroll of approximately $0.5 million.
General and administrative costs as a percentage of total revenues increased from 14.3% for the quarter ended March 31, 2017 to
15.7% for the quarter ended March 31, 2018. General and administrative expenses before audit-related fees were 13.2% of revenue
for the quarter ended March 31, 2018.

Depreciation and amortization. Depreciation
and amortization expense decreased $0.1 million, or 10.2%, from $0.9 million for the quarter ended March 31, 2017 to $0.8 million
for the quarter ended March 31, 2018. The decrease is primarily due to assets at our older locations becoming fully depreciated.

Lease termination expense and asset write-offs.
Lease termination expense and asset write-offs of approximately $0.3 million for the quarter ended March 31, 2017 are for charges
we incurred for the development of future company-owned restaurants that we decided to not pursue further as we have decided to
move forward with a capital light strategy. In 2017, the Company determined that it would not open venues in Austin and Dallas,
Texas. As of March 31, 2018, we have accrued for approximately $1.5 million of future lease payments, net of expected sublease
income.

Pre-opening expenses. Pre-opening
expenses for the quarter ended March 31, 2018 were $0.2 million compared to pre-opening expenses of $0.5 million in the prior year.
The decrease is primarily due to the development of fewer owned restaurants and limited pre-opening expenses for managed locations
in the current period. As of March 31, 2018, we have one company-owned location for which we are incurring pre-opening expenses.
The location is expected to open during the second quarter of 2018.

26

Other income. For the quarter ended
March 31, 2018, we recorded a gain of $0.1 million on the sale of our 10% interest in One 29 Park. One 29 Park operates a restaurant
and manages the rooftop of a hotel located in New York, NY.

Interest expense, net of interest income.
Interest expense, net of interest income remained flat at $0.3 million for the quarter ended March 31, 2018 when compared to the
quarter ended March 31, 2017.

Provision for income taxes. Our
effective income tax rate was 17.5% for the three months ended March 31, 2018, compared to an effective tax rate of 14.7% for the
three months ended March 31, 2017. For the three months ended March 31, 2018 and March 31, 2017, we excluded jurisdictions with
losses in which no benefit can be recognized from the effective tax rate calculation.

In December 2017,
the President signed The Tax Cuts and Jobs Act (the “TCJA”), which includes a broad range of provisions. The TCJA contains
several key provisions including:

·

A one-time tax on the mandatory deemed repatriation of
post-1986 untaxed foreign earnings and profits (“E&P”);

·

A reduction in the corporate tax rate from 35% to 21% for
tax years beginning after December 31, 2017;

·

The introduction of a new U.S. tax on certain off-shore
earnings referred to as Global Intangible Low-Taxed Income (“GILTI”) at an effective tax rate of 10.5% for tax years
beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) partially offset by
foreign tax credits; and

·

Introduction of a territorial tax system beginning in 2018
by providing for a 100% dividend received deduction on certain qualified dividends from foreign subsidiaries.

Pursuant to the enactment of the TCJA,
in the fourth quarter of 2017, we recorded an adjustment of $2.9 million to revalue its net deferred tax asset utilizing the corporate
tax rate of 21% which was entirely offset by a reduction in our valuation allowance. Additionally, we accounted for the mandatory
deemed repatriation using a provisional amount of $1.9 million. Due to the complexities involved in accounting for the enactment
of the TCJA, SEC Staff Accounting Bulletin 118 allows companies to record provisional estimates of the impacts of the TCJA during
a measurement period of up to one year from the enactment date. In order to estimate the impact of the one-time transition tax
on accumulated foreign earnings, we used the retained earnings of our foreign subsidiaries as a proxy to calculate E&P for
the 2017 tax provision. While retained earnings and E&P are two separate and distinct calculations, we believe that retained
earnings can initially be used as a relatively accurate proxy for E&P. We believe that typical E&P adjustments for items
such as depreciation, certain reserves and tax exempt income and other permanent nondeductible expenses for E&P are either
immaterial or nonexistent. Therefore, in the absence of a formal E&P analysis, retained earnings was considered to be a reasonable
estimate. We will conduct a comprehensive E&P analysis prior to the filing of its 2017 tax return. Only after the completion
of the E&P study will we be able to determine with certainty the tax impact of the deemed repatriation provision of the TCJA.
Any adjustment resulting from the E&P analysis will be included as a tax adjustment to continuing operations in 2018.

As mentioned above, the TCJA subjects a
U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. Financial Accounting Standards Board (“FASB”)
Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting
policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide
for the tax expense related to GILTI resulting from those items in the year the tax is incurred. We have elected to recognize the
resulting tax on GILTI as a period expense in the period the tax is incurred and expects to incur no tax for the year ended December
31, 2018 due to the availability of foreign tax credits and net operating losses.

Income (loss) from discontinued operations,
net of taxes. Prior to 2015, we decided to cease operations in six of our locations. Expenses for these operations are presented
as loss from discontinued operations and represent the winding down of these operations. Income from discontinued operations was
$0.1 million for the quarter ended March 31, 2017.

27

Net loss attributable to noncontrolling
interest. Net loss attributable to noncontrolling interest was $0.2 and $0.1 million for the quarters ended March 31, 2017
and 2018, respectively. Our noncontrolling interests primarily relate to outside ownerships of a restaurant and outdoor rooftop
operation in New York City. The rooftop operation is normally not open during the first quarter due to inclement weather.

Liquidity and Capital Resources

Our principal liquidity requirements are
to meet our lease obligations, our working capital and capital expenditure needs and to pay principal and interest on our outstanding
indebtedness. Subject to our operating performance, which, if significantly adversely affected, would adversely affect the availability
of funds, we expect to finance our operations for at least the next 12 months following the issuance of the consolidated financial
statements, including costs of opening currently planned new restaurants, through cash provided by operations and construction
allowances provided by landlords of certain locations.

We cannot be sure that these sources will
be sufficient to finance our operations throughout this period and beyond, however, and we may seek additional financing in the
future, which may or may not be available on terms and conditions satisfactory to us, or at all. As of March 31, 2018, we had cash
and cash equivalents of approximately $1.1 million.

We expect that our capital expenditures
during fiscal 2018 will be significantly less than prior years since we plan to open only one new owned STK restaurant, in addition
to our necessary restaurant-level maintenance and key initiative-related capital expenditures. We currently anticipate our total
capital expenditures for fiscal 2018, inclusive of all maintenance expenditures, to be approximately $3.0 million.

Cash Flows

The following table summarizes the statement
of cash flows for the three months ended March 31, 2018 and 2017 (in thousands):

Three Months Ended March 31,

2018

2017

Net cash provided by (used in):

Operating activities

$

172

$

847

Investing activities

294

(1,353

)

Financing activities

(843

)

95

Effect of exchange rate changes on cash

(28

)

(35

)

Net decrease in cash and cash equivalents

$

(405

)

$

(446

)

Operating Activities

Net cash provided by operating activities
was $0.2 million and $0.8 million for the quarters ended March 31, 2018 and 2017, respectively. We attribute a majority of this
change to the payment of accounts payable and the reduction of accrued liabilities for the quarter ended March 31, 2018 as we
have had more cash on hand resulting from a stock offering completed late in 2017 and improved cash flows at our restaurants.

Investing Activities

Net cash provided by investing activities
for the quarter ended March 31, 2018 was $0.3 million. We received $0.6 million for the sale of our interest in a restaurant and
rooftop bar located in a New York City hotel, partially offset by capital expenditures of $0.3 million.

28

Net cash used in investing activities for
the quarter ended March 31, 2017 was $1.4 million, consisting primarily of property and equipment purchases related to the construction
of new restaurants and general capital expenditures at existing restaurants.

Financing Activities

Net cash used in financing activities for
the quarter ended March 31, 2018 was $0.8 million, which related to scheduled debt payments on our outstanding debt.

Net cash provided by financing activities
for the quarter ended March 31, 2017 was $0.1 million. We received $1.0 million in proceeds from a short term loan agreement. These
proceeds were partially offset by third party debt payments of $0.9 million.

Covenants

We are subject to a number of customary
covenants under our term loan agreements, including limitations on additional borrowings and requirements to maintain certain financial
ratios. As of March 31, 2018, we were in compliance with all debt covenants.

Capital Expenditures and Lease Arrangements

To the extent we open new company-owned
restaurants, we anticipate capital expenditures in the future would increase from the amounts described in “Investing Activities”
above. Although we are committed to our capital light strategy, in which our capital investment is expected to be limited, we are
willing to consider a variety of operating models as new opportunities present themselves. We have typically targeted an average
cash investment of approximately $3.8 million for a 10,000 square-foot STK restaurant, in each case net of landlord contributions
and equipment financing and excluding pre-opening costs. In addition, some of our existing units will require some capital improvements
in the future to either maintain or improve the facilities. We are also looking at opportunities to add seating or provide enclosures
for outdoor space in the next twelve months for some of our units.

Our hospitality F&B services projects
typically require limited capital investment from us. Capital expenditures for these projects will primarily be funded by cash
flows from operations and equipment financing, depending upon the timing of these expenditures and cash availability.

We typically seek to lease our restaurant locations for periods
of 10 to 20 years under operating lease arrangements, with a limited number of options for renewal. Our rent structure varies from
lease to lease, but our leases generally provide for the payment of both minimum and contingent (percentage) rent based on sales,
as well as other expenses related to the leases (for example, our pro-rata share of common area maintenance, property tax and insurance
expenses). Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the
cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased
minimum rents. However, there can be no assurance that such allowances will be available to us on each project that we select for
development.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements
as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

29

Recent Accounting Pronouncements

See Note 7 to the consolidated financial statements included
in Item 1 of Part I of this Quarterly Report on Form 10-Q for information regarding the adoption of Accounting Standard Codification
Topic 606 “Revenue from Contracts With Customers”. There were no other material changes from what was previously disclosed
in Note 2 to our consolidated financial statements set forth in Item 8 of the our 2017 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market
Risk.

As a “smaller reporting company”
as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation
of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures
as of March 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls
and procedures as of March 31, 2018, our chief executive officer and our chief financial officer concluded that, as of such date,
our disclosure controls and procedures were not effective at the reasonable assurance level.

As disclosed in our 2017 Form 10-K, our
management concluded that our internal control over financial reporting was not effective at December 31, 2017.
Our internal control over financial reporting was also not effective as of March 31, 2018.

Remedial Measures

We are in the process
of remediating the identified deficiencies in internal control over financial reporting. However, we have not completed all of
the corrective remediation actions that we believe are necessary.

We are taking appropriate and reasonable
steps to make necessary improvements to our internal controls over the financial statement close and reporting process. We expect
that our remediation efforts, including design, implementation and testing, will continue throughout fiscal year 2018, although
the material weakness in our internal controls will not be considered remediated until our controls are operational for a period
of time, tested, and management concludes that these controls are properly designed and operating effectively.

Changes in Internal Controls

No changes in our
internal controls over the financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the quarterly period ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect our
internal control over financial reporting, except for our remediation efforts described above.

30

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to claims and legal actions
in the ordinary course of business, including claims by or against our licensees, employees, former employees and others. We do
not believe that any currently pending or threatened matter would have a material adverse effect on our business, results of operations
or financial condition.

The following information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 formatted in XBRL: (i) Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017; (ii) Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited); (iii) Statement of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2018 and 2017; (iv) Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited) and (v) Notes to Financial Statements (unaudited).

SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.